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The Charitable Status of Trusts Set up for Political Purposes

June 2011Taxation Today

This article looks at the Greenpeace decision and its impact of trusts set up for politicial purposes.

In a series of recent cases involving organisations originally granted charitable status during Inland Revenue's administration of the sector, the Courts have confirmed initial decisions by the Charities Commission to now remove the charitable status once accorded to those entities. Examples of where this has occurred are: Canterbury Development Corporation v Charities Commission (2010) 24 NZTC 24 143 (HC); Re the Grand Lodge of Ancient Free and Accepted Masons in New Zealand (2010) 24 NZTC 24,590 (HC); and Re Draco Foundation (NZ) Ltd Charitable Trust HC Wellington CIV 2010 485 1275, 15 Feb 2011, Ronald Young J. This list does not include those situations where the charitable status of an organisation has been declined but where that entity has not litigated the matter.

With this background, the latest of the cases in this regard is the decision delivered by Heath J in Re Greenpeace of New Zealand Inc HC Wellington CIV 2010-485-829, 6 May 2011 (Greenpeace). The case involves an interesting aspect of charities law, and in which the law in New Zealand is developing somewhat differently to that in Australia. The particular area of charities law in issue here is the eligibility for charitable status of entities that have political activism as one of their objectives.

In the Greenpeace decision, Heath J goes to great lengths to place this issue into its historical context. The leading English case on the subject is Bowman v Secular Society Ltd [1917] AC 406 (HL), which involved an application by the Secular Society for charitable status. In the judgment delivered by Lord Parker of Waddington, his Lordship articulated why the objectives of the Secular Society were not, in his opinion, charitable. His Lordship stated (at 442):

The abolition of religious tests, the disestablishment of the Church, the secularization of education, the alteration of the law touching religion or marriage, or the observation of the Sabbath, are purely political objects. Equity has always refused to recognise such objects as charitable. ... a trust for the attainment of political objects has always been held invalid, not because it is illegal, for everyone is at liberty to advocate or promote by any lawful means a change in the law, but because the Court has no means of judging whether a proposed change in the law will or will not be for the public benefit, and therefore cannot say that a gift to secure the change is a charitable gift.

(emphasis added; citations omitted)This is not the only English case to deploy that logic. See for example, see Chadwick LJ's speech in Southwood v Attorney-General [2000] EWCA CIV 204, at [204]. New Zealand authorities had also earlier come to the conclusion that political activism was not a charitable purpose. For example, the Court of Appeal was required to consider the charitable status of political activism in Molloy v Commissioner of Inland Revenue [1981] 1 NZLR 688. In that case the issue arose in relation to the New Zealand Society for the Protection of the Unborn Child (SPUC). Delivering the judgment of the Court, Somers J used very similar language to that used by Lord Parker in the Bowman case, stating (at 697 and 698):No one could gainsay the importance and few the desirability of the general principles exhibited by the cases mentioned...

But we are unable to accept that either their expressed reasoning or any implications to be drawn from them convey the present case to the terminus which the taxpayer must reach - that is that the public good in restricting abortion is so self-evident as a matter of law that such charitable prerequisite is achieved. The issue in relation to abortion is much wider than merely legal. And the fact, to which we have already referred, that this public issue is one on which there is clearly a division of public opinion capable of resolution (whether in the short or the long term) only by legislative action means that the Court cannot determine where the public good lies and that it is relevantly political in character.

While these cases set out the orthodox view on why political activism is not considered to be charitable, the validity of the principles that had been development have been challenged both in New Zealand, and more recently, in Australia.

For example, in Re Collier (deceased) [1998] 1 NZLR 81 (HC) Hammond J reviewed the rationale for the consistent judicial finding that political trusts were not charitable. He identified three separate principles. They are also set out by Heath J in the Greenpeace case at [50], and are, in summary:

Political trusts often seek to change the law and hence the legal system can scarcely admit that those objectives are consistent with the public welfare.

Political trusts can be stigmatised as propaganda trusts as they inherently push a particular point of view, and such agitation could therefore constitute a public danger.

It is undesirable for the advantages of charity to be conferred on trusts which overtly "secure...a certain line...of political administration and policy".

Hammond J reflected on the principles listed above, and concluded that all bar the third principle was open to debate.

Hammond J considered the first rationale or principle to be questionable because it is often the case that judges comment on areas where they think that the law should be changed. This occurred in the 1970s in the area of tax avoidance law, for example. Hammond J further observed that judges write extra-judicially, and in that context, also comment on issues where they consider that laws should be changed. Consequently, Hammond J considered that it was problematic to find support for the proposition that trusts that seek to change the law should not be accorded charitable status on the grounds that trying to change the law is inconsistent with that status. The second principle related to the so-called classification of such trusts as "propaganda trusts", with the assumption that such a trust is dangerous. Hammond J considered that a trust with the objective of bringing about revolution or outright disobedience of the law must be illegal and hence could not be charitable. However, beyond those particular areas of concern, he considered that the line becomes much more difficult to draw, and that judges are in reality being asked to make decisions about the worth of a particular purpose.

Importantly, no criticism was directed at the third of the rationales listed above. Not unreasonably, Heath J (having completed the review of the law in the area) commented that the general proposition that trusts established to promote political activity ought not to be accorded charitable status, was in fact based on questionable foundations. He also noted that the High Court of Australia had recently allowed a political trust to achieve charitable status. The case was Aid/Watch Inc v Commissioner of Taxation [2010] HCA 242 (Aid/Watch). Primarily as a result of the approach in Aid/Watch, the case law in Australia and New Zealand is currently proceeding in different directions.

The Aid/Watch case involved a trust which lobbied for the distribution of government aid money.

The High Court of Australia considered that the trust ought to be granted charitable status because:

Aid/Watch's activities were apt to contribute to the public welfare, being for the purpose beneficial to the community within the fourth head identified in Pemsel's case.

The purposes and activities of Aid/Watch did not fall within any area of disqualification for reasons of contrariety between the established system of government and the general public welfare.

The High Court decision was not unanimous. The majority said (at [47]) that the generation by lawful means of public debate concerning the efficiency of foreign aid directed to the relief of poverty, itself is a purpose beneficial to the community within the fourth head of Pemsel. It was implicit in the majority's view that the activities of Aid/Watch generated public debate. However, the two dissenting judges in the High Court disagreed with the majority approach. The minority were critical of the majority view that those who encourage vigorous action to achieve a political outcome could be seen as educating the public on the pros and cons of a particular view point. Heydon and Kiefel JJ considered that there was no attempt by Aid/Watch to provide a balanced point of view. This rationale is analogous to the propaganda trust rationale listed above. Kiefel J, one of the judges in the minority, agreed that there was in principle nothing in Australia to disqualify a political objective from charitable status. Her Honour was concerned, however, about the way Aid/Watch went about achieving its objectives. What it did was target inter-governmental organisations and focused on their policies and practices. What it did not do was encourage rational debate. Her Honour said:

The submission by the appellant, that its purposes are for the public benefit because it generates public debate, cannot be accepted at a number of levels. Its assertion of its view cannot, without more, be assumed to have that effect. Its activities are not directed to that end. If they were directed to the generation of a public debate about the provision of aid, rather than to the acceptance by the Government and its agencies of its views on the matter, the appellant might be said to be promoting education in that area. But it is not. Its pursuit of a freedom to communicate its views does not qualify as being for the public benefit.

Interestingly, the Greenpeace case is not the first New Zealand case to have to grappled with the Aid/Watch case and to consider whether it should be followed here. In February 2011 Ronald Young J had to consider the issue in Re Draco Foundation (NZ) Limited Charitable Trust HC Wellington CIV 2010-485-1275. In that case, the learned Judge refused to follow the Aid/Watch case. His reasons for refusing to follow the case were, firstly that unlike Australia, New Zealand has as part of its law a doctrine excluding political objectives from charitable purposes. He considered that to the extent that Aid/Watch undermined those principles he would not follow the judgment because:

Aid/Watch applied only to cases where the charitable purpose involved relief of poverty.

Aid/Watch was reliant upon Australian constitutional principles that are not applicable in New Zealand.

In the Greenpeace decision, Heath J spent some time considering the Aid/Watch case and the earlier New Zealand decisions. His Honour stated (at [59]) that reluctantly, he felt constrained to apply the full extent of the Bowman line of authorities, on the basis that he was bound to do so by the New Zealand Court of Appeal in Molloy. He considered that "in modern times there is much to be said for the majority judgment in Aid/Watch". He did not consider that the different political system in Australia was sufficient basis for distinguishing the Aid/Watch case. Heath J explicitly left it open for a higher court to revisit the matter of whether the Bowman line of authority ought to remain good law in New Zealand.

Consequently Greenpeace lost its bid for charitable status. The Judge also looked at whether Greenpeace's political activities could be said to be merely ancillary to its charitable purpose, and concluded that they could not be so described.

Even if the Court of Appeal or the Supreme Court were to change the law in principle, there could still be a detail that hampers Greenpeace's bid for charitable status. That detail is that some of the group's actions are arguably deliberately illegal. Because of the Judge's decision that the law in this country precluded political activism from recognition as charitable, he did not need to deal with the issue of illegal activities: see [76]. The Charities Commission did point to evidence, which if correct, appears to provide an objective basis for a conclusion that some of Greenpeace's activities were indeed illegal. For example, the group's activities apparently involved trespass and the like. We already know that this case will go further, as Greenpeace have indicated their intention to appeal. Hammond J must be correct when he says that classifying political causes as charitable, if their objective is beneficial to the community, involves a large measure of value judgment. However, in any case, value judgments must be made in this sector of the law - so this ought not to be an a prori argument for not granting charitable status.

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